Innovation And Economic Growth Drive Self Storage Industry In Asia

By all measures the self storage industry is expanding in Asia, driven by tech-savvy startups, innovative practices, and economic growth. Growth in the property class is occurring not only in established markets like Hong Kong and Tokyo, but in newer markets like Singapore and China. “Self storage in Asia is attracting entrepreneurs and investors because they smell opportunity,” says Luigi La Tona, Executive Director of the Self Storage Association Asia (SSAA), an industry group dedicated to promoting the self storage industry in Asia. He adds, “We’re seeing a large increase in the number of investors contacting us to get more information about the self storage market all across Asia, and deal flow is increasing.”

In July, 2013 StorHub acquired storage operator Big Orange for approximately $68M USD. In March, 2015, Hong Kong based MiniCo Self Storage was purchased by investment group Blackstone for approximately $54M USD. Self storage demands rents four times as high as other uses for the same land such as factories, grade C office space, and warehouses. Internal rates of return for sub-leasing underutilized space and turning it into self storage range from 23% in Hong Kong to 30.4% in Singapore. This kind of activity is attracting operators with new ideas and non-traditional approaches to storage, as well as young tech entrepreneurs.

(Credit: iStock)

Technology and Innovation

When you think of self storage you might think of a run down, single story cinderblock building with a metal roof sitting on a back street on the bad side of town, run by a senior couple as a supplement to their retirement plan. While that description may still be accurate in some parts of the United States, it’s anything but the norm in China, Japan, Taiwan, Hong Kong, or a host of other Asian countries where the sector is relatively new. In Hong Kong, MiniCo owns a 25-story building where the first floor is leased to car owners for daytime parking (a lucrative business in Hong Kong--last year a single parking spot in the city sold for $547,000 USD) and the other floors, accessible by elevator, are full of state of the art metal lockers. In Tokyo, storage operator Box has a location in the middle of a residential area, where customers can literally walk their storage items to the facility.

Today's self storage customers are looking for more than a square room where they can store their extra stuff. They also don't use phone books or depend on ads to find what they want. A 2015 study by the consulting firm Ipsos found that in Hong Kong, 71% of non-users of self storage said they would look for a self-storage facility on the Internet. A new self storage concept that combines the new desires of self storage customers with online technology is “valet storage.” Several valet operators have popped up in Hong Kong during the past year, including startups like AirBox, Boxful, and Spacebox[Full disclosure: Spacebox is a client of my agency]. Because most Hong Kong residents don’t own a car, and getting a bunch of stuff to a self storage facility is inconvenient without your own transportation, these companies drop off plastic storage bins at your residence. You fill up the bins, then they pick them up and store them for you. You can track your bins through a website or smartphone app, and when you need something from one of the bins, you use the website or app to request the bin you need, which is then delivered to your door.

Other startups include service providers to the industry. Brothers and business partners Charlie and Miles Davison launched the valet storage company StuffGenie in early 2014, but then quickly took that experience and launched Storeganise, which provides valet storage software to traditional self storage operators so these companies can offer valet storage services in addition to traditional self storage.

Self storage operators used to track tenants and manage their properties on paper, then spreadsheets, but now they use sophisticated software. “Operators are getting increasingly sophisticated and they need cutting edge software that can help them manage their assets,” says Dallas Dogger from Sitelink Software Asia. More than 11,000 self storage locations run Sitelink software worldwide, making it the largest provider of self storage management software. The company, headquartered in Raleigh, North Carolina, had the foresight to look beyond the US and began expanding international several years ago. Says Dogger “We recognised early on that Asia was a growth path for self storage and we implemented language support and tax rules along with payment options, supporting local operators.”

Economic Growth

At the 3rd annual Self Storage Expo, hosted in Tokyo by the SSAA, Darren Benson, Executive Director Industrial & Logistics Services for CBRE, the world’s largest commercial real estate services and investment firm, shared a forecast of increased demand for self storage in Asia due to a low usage per household and a growing middle class. In the US there are 21.62 square feet of self storage per household, whereas in Tokyo there is a mere 0.32 square feet of storage per household. Hong Kong and Singapore are only slightly higher, with 1.13 and 1.3 square feet of storage per household, respectively. While households in Asia tend to purchase fewer large items than the typical US family due to small living quarters, there is clearly room to grow. Ernst & Young predicts that Asia’s middle class will grow by billions over the next 15 years, and that by 2030 Asia-Pac’s populations will account for two thirds of the global middle class. With increased prosperity, this middle class is doing what you might expect--they’re buying more stuff. As they accumulate more goods, a subset of that population finds itself wanting to declutter, which leads to demand for self storage.

“We have seen a constant increase in demand from operators and new market entrants in Asia,” Neil Waterman, General Manager of Steel Storage Asia, a storage design and construction firm. “The initial operators have continued to expand in the core countries while spreading to new territories and we have a constant flow of inquiries from new entrants.” Waterman says while initially most of their work came from Singapore and Hong Kong, now they are seeing activity and interest across the whole region, including Indonesia, South Korea and most recently China.

Challenges

Although the fundamentals look good, the self storage industry in Asia has its challenges. "Consumer awareness and usage rates are very low compared with Australia and the US,” says Simon DeGaris, Managing Director of Self Storage Investments. DeGaris, an Australian who became fluent in Japanese after a two-year stint in Tokyo as a young Mormon missionary, returned to Tokyo to attend the Expo and explore opportunities to build storage facilities in Japan. “For the industry to flourish in Asia there are many parties who need to be educated about self storage including banks, property experts, and consumers,” he says. He continues, “There aren’t many properties available for purchase in Japan, so some self storage operators are forced to entertain very short term leases within multi story buildings. In some countries the laws make property acquisition challenging.” But, he says, “The most important factors for the self storage industry are population density and an undersupplied marketplace, and that’s what Asia has in abundance. Once you get past the hurdles the opportunities are exceptional.”

Another challenge for the self storage industry in Asia is a lack of good, relevant data. “Data is critical to real estate because it fosters transparency in the market, and participants can better measure and compare performance metrics,” says Christian Sonne, Executive Managing Director of Cushman & Wakefield, who presented at the Expo in Tokyo. “In an emerging sector like self storage in Asia, data is particularly important so market participants can become comfortable with the sector. Collecting and analyzing data now will allow for trend analysis in future years.” Sonne went on to say that in the US, his firm collects data on 8,000 storage facilities per quarter. Over 100 free publications that include parts of that data can be found at SelfStorageEconomics.com and soon this type of data will be available in Asia.

The best data will come years in the future, but the data available right now is already fueling investment.

While the US got a head start on self storage decades ago, it had to create the industry from scratch. It also didn’t enjoy the massive scale of Asia, nor the technology that facilitates every aspect of growth for the self storage industry. If history is any guide, we can expect to see rapid development of the self storage industry in Asia. Just as Asia now has more than three times the number of smartphone users than there are people in the US, the day may come when its self storage capacity far surpasses that of the US as well.

Joshua Steimle is the CEO of MWI, a digital marketing agency with offices in the US and Hong Kong.